Jeremy Warner & Editorial Comment
Some form of customs union will be necessary if we want a frictionless border with the EU
As Parliament, and the country, degenerate into a state of renewed civil war over Brexit, it’s time for a bit more honesty, on both sides of the debate, over the economic consequences.
For many Brexiteers, sovereignty is all. If there is an economic cost to quitting, so be it; almost any price is worth paying. This is the “better to be a poor master than a rich slave” argument. I hardly dare mention that many of those advancing it are already very rich, and therefore scarcely likely themselves to feel the pain of a lower rate of economic growth.
Yet the economy is not everything, even for those who are not well off; blinkered pursuit of GDP growth regardless of the wider social consequences might reasonably be thought some part of what’s gone wrong these past 30 years. For a large body of public opinion, self determination, the sanctity of the nation state, and the purity of the British way of life are more important.
Part of the argument for Brexit, however, is that we will quite literally be better off out than in, economically as well as metaphorically. This has always been mere assertion. It is completely unknowable; so much depends on how commerce and public policy respond to the challenges. Even so, the UK is a big, supremely adaptable, open and robust economy, so there is some reason for optimism.
Outrageously, the Government has yet to publish its assessment, even though its deeply negative substance has been leaked and some of the detail is available to MPS. As Robert Chote, chairman of the Office for Budget Responsibility, has pointed out, without knowing the key judgments, assumptions and modelling, the study is rendered almost wholly meaningless. As long as it is kept substantially under wraps, it is always going to be subject to allegations of institutionalised, anti-brexit bias. Forecasts, Warren Buffett famously said, may tell you a great deal about the forecaster; they tell you nothing about the future.
In any case, rather than seeking guidance from theoretical economists, I find it more instructive to listen to what is actually being said at the coal-face of business, among those directly affected. What do the tens of thousands of enterprises up and down the country who trade with Europe think of these political quarrels? Most of them will tell you that they can live with leaving the European Union. But they do indeed worry about what it will mean to also leave the European customs union.
Any examination of the evidence shows that in order to achieve the “frictionless” trade with Europe currently enjoyed, as well as avoid any hardening of the Irish border, the maintenance of some form of customs union is required. Leaving it would pile up the costs and bureaucracy of European trade, negating much of the potential deregulatory dividend of quitting the EU in the first place.
Yet to remain part of it, as Labour’s leader Jeremy Corbyn now seems to propose in his latest flip-flop, denies a key element of taking back control – freedom to negotiate our own trade deals with the rest of the world. Personally, I’m sceptical about the value of such deals. Yet their promise holds totemic status among Brexiteers as part of the economic case for leaving. To placate them, Mrs May says she’s definitely leaving, come what may.
Most halfway houses that might square the circle look to be nonstarters. Turkey is in a partial customs union with Europe, but because the arrangement doesn’t cover food, trade is still far from frictionless; a hard border with customs checks still operates. It also compromises Turkey’s ability to do trade deals with the rest of the world. A so-called customs partnership, under which the UK would collect EU tariffs on goods and components destined for the Continent, looks equally problematic, and in any case has already been ruled out by Brussels as unworkable.
That leaves what is sometimes called a “highly streamlined customs arrangement”, not dissimilar to that operated by Switzerland and Norway, and between Canada and the US. It’s not ideal, but it’s a logical, and manageable, way forward. Under such a system, customs clearance occurs electronically and in the majority of cases automatically. But it is not “frictionless” or bureaucracy free, it may be unacceptable to Ireland, and it will involve a very considerable investment in the necessary infrastructure.
Even so, I’m assuming this is what ministers will eventually agree for Britain’s negotiating position. As for access to the single market for services, and in particular, financial services, forget it; Brussels will not be ceding it. Ministers are deluding themselves in thinking the EU can be persuaded. By driving as hard a bargain as possible, Brussels hopes the UK can be forced to change its mind. The EU won’t blink in pursuit of this strategy, whatever the economic damage to itself. The sooner this is explained to the British public, the better it will be for everyone. The having cake and eating it fantasy is over.